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Caltex to spend $120 million to buy out franchisees

Caltex Australia has announced its plan to shell out up to $120 million in buying out its franchisees to fulfill its plan to have company owned service stations by 2020.

AAP said the store conversion’s total cost is estimated around $100 million to $120 million over the next three years. This includes money for franchisees who agree to a reduced tenure and acquisition of working capital and fixed assets.

The Sydney Morning Herald reported the petrol giant’s move comes after a difficult period, which was rocked by a wage underpayment scandal within its franchise network.

“Franchising has been an integral part of growing the retail business. Caltex appreciates that this is a significant decision and it will affect many of our franchisees. [We] will work with our franchisees to manage the impact of this change, including by offering franchisees transition support and offering employment to all franchisee employees,” Caltex said in a statement.

“Caltex acknowledges that alternative ownership and operating models exist for its assets, including the real estate and infrastructure assets, and that there are different perspectives of how long-term shareholder value is generated. Caltex is well progressed in its review of the preferred ownership model, and is working through all options to determine which outcome will deliver the most long-term value for shareholders.”

AAP reported that at the end of 2017, just over a third, or only 314 of 810 petrol stations, were Caltex operated, with the rest owned by franchisees. Franchisees operate 433 sites and the company currently operates 314 sites, up from 152 sites a year ago. The petrol giant also has rolled out 26 of its new format “The Foodary” pilot stores that offer healthy food on-the-go and convenient services like parcel pick-up and dry cleaning.

The petrol giant reported also its full-year profit result, that was largely in line with guidance, and after a two-year review into its convenience retail model. The fuel retailer’s statutory full-year net profit has risen just one per cent to $619 million, however, its closely watched replacement cost operating profit (RCOP), which strips out the impact of crude oil price fluctuations, has risen 18.5 per cent on the prior year to $621 million.

The RCOP is roughly in line with Caltex’s profit guidance of $600 million to $620 million. Strong global oil crude prices and higher refiner margins fuelled a 19 per cent lift in Caltex Australia’s annual revenue to $21.4 million. Shares in Caltex were up $1.61, or 4.6 per cent, to $36.61 by 1020 AEDT.

The review will be completed towards the end of the second quarter of this year.